Financial companies and other institutions, such as credit card companies, increasingly leverage the business value of their accounts and customer base beyond the fees derived from transactions on the accounts themselves. One example of such a technique arises when a first financial institution or other entity provides access to its customer database to a second institution, for marketing or other purposes. The second institution may mine that database to find candidate customers, test price points, determine geographic patterns and perform other research and marketing tasks.
However, because some consumers may be uncomfortable with the fact that they often possess little or no control over their private financial and other information contained in any number of databases, various privacy laws have been enacted controlling the sharing of personal information. Such information may include a person's private information such as name, address, age, social security number and other information, financial information such as existing credit accounts, existing balances, credit histories, income and other information, and medical information such as current health status, policy coverage, pre-existing conditions and other data.
One example of current privacy laws is Regulation P promulgated by the Federal Reserve, which in part requires that when a potential credit consumer seeks to open a credit account, the financial institution taking that application must inform that applicant that the applicant has a right to prevent that institution from sharing their personal information with third parties. The applicant is thus given the opportunity to opt out from allowing the financial or other institution to share their financial and other information with other companies and institutions. This option may also be presented to existing customers of a credit or other institution.
Privacy policies such as these have market consequences. For example, among all new applicants for new accounts that are informed of their ability to opt out from the sharing of their financial information, some percentage may end the application process at that point before even making a choice about privacy settings. Some may do so because they do not believe that the financial or other institution taking their application will honor their obligation not to recirculate such information. The applicants who terminate the application may increase the new-account acquisition costs for the financial or other institution.
Moreover, of the remaining customers that choose to continue the application process, another significant percentage will in fact opt out, thereby preventing the acquiring institution from sharing the customer's information with other institutions. Again, the applicant's or existing account holder's opting out reduces the institution's ability to leverage its customer database. At present, almost forty percent of account holders are choosing to opt out of privacy sharing for their accounts.
These and other drawbacks exist in the handling of privacy-protected accounts.